Six Tips for Maintaining a Healthy Cash Flow

Improving the Cash Flow in Your Small Business

By Dimitrios Shistohilis-2007

In order for a business to stay afloat, it must maintain an adequate level of cash. These are six tips you can use to improve your cash flow. Adequate cash means that you can meet your obligations. Don’t just add and subtract your numbers, manage them. If you remember that cash is king and follow these tips, you should see an improvement in your cash position sooner rather than later:

1. Check Customers' Credit Histories

Decide the type of customer to whom you want to extend credit. Do you want to have a particular cut-off credit score? If you extend credit to customers with questionable credit histories or low credit scores, you may experience late payments or no payments, which will slow down your cash flow and increase your collection costs.

2. Keep Track of Your Customers' Payments

Have up-to-date payment records. Keep accurate payments records by using a specialized accounting software program that will keep track of your invoices and when payments are made. If customers are late with their payments, it could cause a cash flow bottleneck for you. Accurate recordkeeping will help solve this problem.

3. Set Appropriate Credit Terms and Offer a Cash Discount

Make sure your customers understand how long they have to pay their bill. In order to speed up the cash they pay, you might want to offer a cash discount to any customer that pays in a short period of time, designated by you, or to a customer who pays cash.

4. Extend Your Timetable for Making Cash Payments

Pay your bills on time and take advantage of any cash discounts your suppliers offer you. However, hold onto your cash as long as possible. Don’t pay bills weeks earlier than they are due. Your company can use that cash balance, rather than letting your supplier use your company’s cash.

5. Increase Your Sales

Even in a recession, you can increase your sales. It's not the time to increase prices. Keep prices the same or consider deep discounting. If you don't accept credit cards or sell online, consider both strategies. .

6. Reduce and Eliminate Your Obsolete Inventory

Make sure you aren’t holding on to obsolete inventory. If you are, mark it down and sell it. Storing it is costing you money and selling it at a lower price is better than not selling it at all. The longer you hold on to obsolete inventory, the less likely it is to sell.